Samsung becomes the second major foreign company in recent months to challenge an Indian tax demand [File]
| Photo Credit: REUTERS

Samsung has asked an Indian tribunal to quash a $520 million tax demand for allegedly misclassifying imports of networking gear, arguing officials were aware of the practice as India’s Reliance imported the same component in a similar manner for years, documents show.

Samsung becomes the second major foreign company in recent months to challenge an Indian tax demand.

Volkswagen has sued Prime Minister Narendra Modi’s government in court for a record demand of $1.4 billion for misclassifying its component imports.

In the Samsung case, tax authorities in January asked Samsung to pay $520 million for evading the 10-20% tariffs by misclassifying imports of a key mobile tower equipment, which it then sold to billionaire Mukesh Ambani’s telecom giant, Reliance Jio, from 2018 to 2021.

In its 281-page challenge at the Customs Excise and Service Tax Appellate Tribunal in Mumbai, Samsung criticises Indian authorities for being “fully aware” of the business model as Reliance had a “long-established practice” of importing the same equipment without any tariff payments for three years until 2017.

Samsung’s India unit says it discovered during an Indian tax investigation that Reliance had been warned about the practice way back in 2017, but Reliance did not inform the South Korean company about it and tax officials never questioned Samsung.

“The classification adopted by the appellant (Samsung) was known to the authorities, however the same was never questioned … Department was fully aware,” Samsung says in its April 17 filing, which is not public but was seen by Reuters.

“Reliance Jio officials did not inform” Samsung about the tax warning of 2017, it adds.

Samsung and India’s tax authority did not respond to Reuters queries.

Further details of Reliance’s 2017 warning from tax authorities are not public and were not disclosed in the Samsung filing. Reliance didn’t respond to Reuters queries.

Other than $520 million demand Samsung faces, Indian authorities have also imposed an $81 million fine on seven of its employees, taking the total tax demand to $601 million. It’s not clear if Samsung employees are separately challenging the fines.

The tax demand represents a substantial chunk of last year’s net profit of $955 million for Samsung in India, where it is one of the largest players in the consumer electronics and smartphones market.

In defending its tariff declarations, Samsung also argues in its filing that the tax authority passed the order in January “in a hurry” and it was not provided “a fair opportunity” to present its case, despite the “huge stakes” involved.

The Samsung case concerns imports of a component called “Remote Radio Head”, a radio-frequency circuit enclosed in a small outdoor module, that tax officials say is “one of the most important” parts of 4G telecoms systems.

The case against Samsung alleges it misclassified the component’s imports worth $784 million from Korea and Vietnam between 2018 to 2021, to maximise profits.

Investigators found that Samsung “transgressed all business ethics and industry practices or standards in order to achieve their sole motive of maximising their profit by defrauding the government exchequer,” the January order stated.